Archive

December 29, 1986, Vol. 04, No. 25

Bottom fishing near the top

General Electric's decision to throw a half billion dollars into the Wall Street leverage industry would seem to ring another bell. GE, after all, is one of the last triple-A corporate credits on the American scene, and its decision to go slumming in speculative-grade debt suggests a loss of self-confidence.

13 stocks

A new index of stocks in the Drexel Burnham Lambert orbit, created exclusively for Grant's, debuts in this issue. Each of the 13 component companies is a Drexel investment banking client, an investor in Drexel-underwritten securities, or both.

Credit quality: the long view

Credit is a mechanism that makes it possible for economic units to spend out of phase with their income. -- Edgar R. Fiedler, Measures of Credit Risk and Experience (National Bureau of Economic Research, 1971).
Spending out of phase with one's income (if any) is absolutely de rigueur nowadays...

Bullish on business

The J-curve effect is in full play, and the underlying real trade improvement is even more powerful than the monthly reported surface nominal dollar reductions in the U.S. trade imbalance. Yes, Virginia, there is a trade improvement.
--Gert von der Linde,

Commodity future prices weaken

Tile Commodity Futures Bureau Price Index continues to tinker with a possible downside breakout, the focus point of our warnings last week. The Index was pressured into another probe of its four-month plateau of support fashioned in the 208 area...

December 15, 1986, Vol. 04, No. 24

Peace and quiet

In the government bond market, the news is the dearth of news. Since last April, when yields stopped falling, long-dated securities have set up light housekeeping. The decline in volatility has attracted no great attention, but it must, if it keeps on going. Wall Street has invested billions in turmoil.

Preferred brouhaha

It may not exactly be the shot heard round the world, but Pennsylvania Power & Light has called some preferred stock for early redemption at a price below the market. GEICO, which owns the issues, has filed suit, the preferred market is roiled and lawyers are preparing to argue the fine issues of contract law.

Euro-crisis recedes (and what was it?)

Just when the term "perpetual floating-rate Euronote" began to seem even halfway intelligible, the crisis in that oddball security dropped from international sight. What happened, what caused it, and why should it matter?

Media

There's no denying the popularity of broadcast, cable and media debt -- Morgan Stanley has sold enough of it to paper a large house -- but what can be denied, sometimes, are the numbers. They don't add up in the manner of one plus one.

Weakest sisters

The malaise in junk has little to do, this time out, with credit. It's the investment bankers who are under a cloud, not the bonds.
That may change, of course, and we fully expect it will. Believing that credit will one day reclaim its rightful place at the center of finance, Grant's has undertaken a search for the humblest low-rated debt issuers.

No problem: Just wait till next year

Media, media

"We're doing this stuff too," he added, pointing to the sprawling Morgan Stanley securities-trading room just down the hall. "You ought to see the sort of deals going on in there. Everybody's gonna get carried out when the junk-bond market goes." -- Barton M. Biggs as quoted in The Wall Street Journal, December 5, 1985.

December 1, 1986, Vol. 04, No. 23

One in the eye for junk finance

Revelations that Ivan Boesky, the arbitrageur, philanthropist and author, has owed his stupendous success not to native brilliance but to a succession of feedbag tips purchased from Dennis Levine, the singing investment banker, mark a great divide. Like an earthquake that topples a few buildings and rattles everyone's cups and saucers, the Boesky affair is likely to change the financial landscape in ways large and small.

Bullish on insurers

General Reinsurance, the company about which Neuberger and Berman has been pounding the table, is running happily against the tide of 1980s finance. Its problem is not where to find the cash, but what to do with the torrent that rolls in the door.

Buy now, pay later (and later, and later. . . )

When First Boston Corp. last month offered $3.2 billion's worth of securities backed by auto loans, the market put its foot down and demanded $4 billion. Happy to oblige, First Boston set a record for the biggest underwritten deal in U.S. annals and proved again that the modern investment banker stands ready to "securitize" almost anything.

Leverage luster

When the editor of Grant's runs out of blue shirts for television appearances (as he did in the week of Ivangate), it should be like picking up money off the sidewalk to sell him short and buy Drexel Burnham. But last week the Grant's Leveraged Stock Index took a beating. All at once, a highly indebted capital structure was exactly what the stock market had no time for.

November 17, 1986, Vol. 04, No. 22

Bid wanted: Television stations

When SCI holdings, successor to Storer Communications in a leveraged buyout, served notice to investors last year that, barring a successful sale of assets or a restructuring of debt or a rush of prosperity, they might as well kiss their money good-bye, the prospectus language had lost its power to shock.

Houston antiques sale

What made the 1970s the 1970s was inflation, and the place where inflation settled down to make its home was Houston. What Boston is now to financial assets -- Boom Town, USA -- Houston was then to tangible assets. It was an era decked out as a city.

Jumping on desks at Salomon Brothers

A recent story in The Wall Street Journal on the global market in Treasury bonds featured a temperamental trader at the Salomon Brothers office in Tokyo. Bernard Ward, the fellow who caught the Journal's eye, is 27 years old, stands 6'6" tall and weighs 230 pounds. He used to play rugby.

October 20, 1986, Vol. 04, No. 20

Scoop on junk bonds

Inflation's "breadth" gains

"Breadth," or the simple ratio of advancing to declining issues, is one of the handiest items in the stock-market tool chest. It is nearly everyone's favorite indicator of the strength of a price movement...

Fredberg' s hunch

Albert Friedberg, the Toronto-based speculator, has had a change of mind on the markets. For as long as we can remember, Friedberg has been bearish on bonds and stocks. But the other day he told us he'd turned bullish, or at least not bearish. He said he smells a new Bretton Woods accord.

Rally in junk people

Linda Bialecki is a head hunter whose specialty is the high-yield bond market. The junk people of whom she can never find enough are the credit analysts who know their business. The rarest of these human hen's teeth are the credit analysts who have actually been through a bear market.

Prosperity gets stranger

The sight of IBM and General Motors together on the new low list the other day has fired the economic imagination. It has raised once more a question that has vexed and beguiled the bond market for the past two years.

Defense fund

The "Select Capital Preservation Fund" is a mutual fund for investors who have already sown their wild oats. Conceived by a bear, and slated for launch in January, the fund will invest in gold, gold-mining shares and short dated government securities denominated in dollars, Swiss francs, Deutsche marks and yen.

"Dequity," and other post-J. P. Morgan concepts

"Dequity," and other post-J.P. Morgan concepts
An address by the editor of Grant's before the Financial Management Association in New York, October 16.
I wouldn't be anywhere else this morning. In a bull market, we bears do whatever we can to make ends meet, and we do it gratefully.

Disinflation disimproves again

World Bank: read the notes

The World Bank is a triple-A-rated institution that trades like a triple-A and has all the right triple-A friends. It is the biggest non-sovereign borrower of medium- and long-term capital in the world.

Animal spirits rally

FSLIC's new trick

If it's all right with Congress and the President and Craig Hall, the Texas real-estate syndicator, the Federal Savings and Loan Insurance Corp. will soon raise $3 billion in life-saving capital. The $3 billion will help to secure an additional $15 billion, which is supposed to guarantee the solvency of FSLIC in the coming hard times.

The Fed rules ( or does it?)

This banker said that from the early 1970s on, there were virtually no borrowers with AAA or AA ratings. Most corporate lending was to A and lower-rated borrowers and among the better borrowers in this group, loans were mainly bridge-type financings....

Banking with Tisch

Thomas J. Tisch, who is not to be confused with his father, Laurence A., the acting chairman of CBS (of whom he is the spitting image), nor with his uncle, Preston R., the new Postmaster General, nor with his brother, James S., the shipping magnate, has some tips for bank-stock investors...

Money surges, quit so what?

A bond market that can coolly absorb a $4.3 billion money-supply number on top of the news of the resignation of a pro-Volcker member of the Federal Reserve Board is not a market to panic over a news analysis on page A-24 of Thursday morning's NY Times. Nonetheless, the story deserves more attention than it apparently received.

Junk government

Bull market in promises

"The old kazazza," according to Bertie Briscoe, who trained the featherweight Sandy Saddler, is the place to hit a person, if you have the time to be exacting about it. The same advice might be profitably applied to the financial arena: The region of maximum vulnerability is the best destination for a punch.

People preferred

Beware the dollar

Back in December, Stephen Marris of the Institute for International Economics in Washington published a study titled, Deficits and the Dollar: The World Economy at Risk. He may be wrong -- it is to be hoped that he is...

Tax receipts rise

September 8, 1986, Vol. 04, No. 17

Reflation catechism

Some timely questions and answers: What is reflation?
It is a successful policy of monetary debasement and fiscal stimulus. It is the ancient political cure for tired booms, heavy debts and restless voters.
The U.S. government is reflating, right? Trying, not necessarily succeeding.

Six percent and hope

Lower rates, no more credit

Although a piker by the zero percent standards of American Motors, the Federal Reserve Board cut the discount rate last month to 5-1/2%, the fourth such gesture this year. We use the word gesture advisedly...

August 11, 1986, Vol. 04, No. 16

Fearless once more

William H. Tehan, the successful inflation investor turned successful deflation investor, called in from a Vermont tennis tournament last week to satisfy the curiosity of his many fans. Ever since the stock market topped out and gold began to rally, people have been asking after him and his portfolio.

Found: a bull on business

If Gert von der Linde, chief economise at Donaldson, Lufkin & Jenrette, declared that the grass was blue and the sky was green, a prudent man might steal a glance out the window before betting against him.

"Perfect savings account"

"Since Treasuries are dollars which pay interest, if a dollar flight occurs, Treasuries will decline in price."
August Arace, the author of that sentence, is a professional handicapper of the inflation/deflation contest.

A vote for reflation

A Cook's tour of the numbers:
-- Adjusted Federal Reserve credit: expanding at the customary rates of growth, about 8-1/2% year-over-year.
-- Adjusted monetary base (defined as bank reserves and currency): up by about 8% year-over-year, also on trend.
-- Borrowings from the Fed: customarily low....

Alger's chauffeur

Texas Air preferred

Texas Air Corp., the airline holding company that has leveraged itself to the wild blue yonder, issued six million shares of 6-1/4% cumulative convertible junior preferred at $25 each the other day. Nobody seemed to have minded the prospectus.

Sage of Tampa

One day in 1947, the front page of the old Washington Daily News carried a story about a child prodigy. "Well, Can YOU Read the Backs of Dominoes?" the headline inquired, and a photo showed a tyke in bow tie and bib overalls holding a large wooden domino up in the air with his left hand...

July 14, 1986, Vol. 04, No. 14

A 6% solution?

Concerning Thursday's discount-rate cut, to 6% from 6-1/2%:
1. It was exactly what the market expected and half of what it wanted.
2. It was unaccompanied by reductions in Japan or Germany.
3. It was a monetary gesture.

Topping out

Seven World Trade Center, the largest speculative office tower erected in New York and the future corporate headquarters of the largest speculative bond house erected on earth, was topped off last Tuesday.

Junk offerings climb

Well might Drexel Burnham buy its own skyscraper. In the April-June quarter, according to Salomon Brothers, junk-bond issuance topped $14 billion, a number that represented 31% of overall corporate bond issuance.

June 30, 1986, Vol. 04, No. 13

What the Japanese won't touch

Lisa Wolfson, a First Boston vice president who deals in the exotica of risk-controlled arbitrage, has just returned to Manhattan from a series of business trips...
Over a welcome-home lunch, she was able to confirm that the Japanese hardly eat lunch at all. In Tokyo, she said, they go out for 15 minutes to slurp noodles standing up. Investment decisions are always savored, however....

So where's the Arctic fund?

Reaching for yield

The first day out of the gate, the brand-new Macy 16-1/2s of 2006 -- the junior subordinated debentures that pay no interest in cash until 1993 -- spurted five points. Almost nobody paid attention; not a word of it got into the papers. It was as if a $1.5 billion debt transaction has become chopped liver.

June 16, 1986, Vol. 04, No. 12

Shopping at home

People can talk themselves blue in the face about the business and economic fundamentals, but what the financial markets seem increasingly concerned with are the markets themselves. There is a circularity about a ripening speculative trend...

Cyclonic

Bank clearings in New York are boiling. They were up by some 54% in April, year to year, and were higher by some 41% in the four-month period from January to April. At last report, they were running at a weekly rate of $2 trillion, whatever $2 trillion means.

Gold standard in fact?

Bond pace prognosis: Up

Seeking help (as usual) from the professional timing fraternity, we made the rounds Thursday to find out where the bond market was going next and when. For the very short run, the thinking was mostly bullish.

June 2, 1986, Vol. 04, No. 11

"Guess what?"

Only a month ago, the Federal Open Market Committee felt constrained to warn the bond market against an excess of optimism. Only a week ago, the Federal Reserve Bank of New York felt obliged to find out about the damage attending the short squeeze in the 9-1/4s of 2016.
But nothing stays the same for long in the bond market.

Leverage index

Needless to say, the marketplace is no debating society, and rhetorical points are not dollars. Mindful that dollars and cents are the only genuine chips in corporate finance, we have devised a new debt barometer. It's the Grant's Leveraged Stock Index.

Junk bank loans

"As a bank supervisor, I see an omen -- tremors in the banking system," the Comptroller of the Currency, Robert L. Clarke told a possibly slack-jawed gathering of the Boston Economic Club the other day. "The tremors tell me that things are not as steady and stable as they used to be."

Downgrades: Who cares?

Tehan gets richer

It is hard to imagine anyone more bullish than Bill Tehan -- or more bearish. It is hard to conceive of anyone more successful than he has been at calling the big financial turn -- or more unsuited to life at the average brokerage house. All in all, it is hard to think of anyone on Wall Street just like him.

Watch commodities -- and Milan

May 19, 1986, Vol. 04, No. 10

Dennisgate

The Dennis Levine-size jump in the money supply last Thursday gave rise to speculation that not even that much money was enough -- that not even $6.1 billion of M-1 and $29.6 billion of M-2 could suffice to keep Wall Street in the style to which it has lately become accustomed.

Taxing debt

Tax reform has been no friend to leveraged real estate. No sooner did the Packwood scheme see the light of day than the shares of Integrated Resources, the real-estate syndicator cum financial-services company, crashed.

The long view

In 1900, the Dow Jones Industrials were on their way to 70, and high-grade corporates fetched 3.31%. If, in that year, you put $100 into the stock market and $100 into the bond market, if you kept that money invested and if you reinvested the dividends and the interest income, what would you be today?

Blind pool of the week

Lightening up

In the past few months, some respected voices in the financial markets have been raised on the side of caution.... In any event, we've drawn up a short list of what these heavyweight people and institutions have been saying or doing...

Fannie Mae

Pulling a Minstar

This is a story about the early and artful call of some high-yield notes. It is a story about the psychology of the bond market (complacent), the recent frame of mind of some fixed-income investors (mad) and the latest wrinkle in investor protection (ironic). It is about the hazards of investing in a blind pool (considerable).

Financial stocks

Unleveraged bank

About the worst thing you can say against the Amalgamated Bank of New York is that you can't own its stock. The Amalgamated Clothing & Textile Workers Union, which founded the bank in 1923, controls every share.

People Express

In the airline industry, debt flies first class, business class, coach or standby, depending on the carrier. A surprise standby entrant: the 17-1/2% secured equipment trust certificates of Eastern Airlines...

Geologic leverage

Many junk-bond players would stop short at investing in a dirt pile. But Evans R. Dick III, who has invested in a pair of gold-bearing dirt piles near Helena, Mont., will have nothing to do with junk bonds.

Castle in the air

Drexel Burnham Lambert Inc. intends to lease the entire World Trade Center Seven tower and consolidate its offices, which are currently scattered in four downtown buildings, Crain's New York Business has learned. . . .

More on spreads

Good-bye, euphoria; Hello, hysteria

Gert von der Linde, the economist at Donaldson, Lufkin & Jenrette who was an early and stalwart bull on the bond market, now has some bearish things to say. But he prefaces them with some moderately bullish things.

Yield panic

All but the leakiest vessels have been lifted by the incoming tide of this bond-market rally, but parts of the fixed-income fleet are riding higher in the water than others. Riding highest of all are Treasuries. Nothing has come even close to them.

Farm bank

"I will not belabor the state of Iowa's agricultural economy except to predict that the bottom will be reached this year, and prices will start to stabilize and the recovery will be slow and gradual. . . . We reasonably cannot predict a return to a respectable level of profitability prior to 1987."
-- Kenneth M. Myers, chairman of the board and chief executive officer, First Interstate of Iowa, in remarks delivered at the bank's annual meeting, April 17.

Inflation futures

Deflation omens

Whatever it may or may not mean for the world at large, mortgage foreclosure postings set a 23-year record in Dallas (not Houston) last week, and spreads between junk bonds and Treasury bonds yawned wider than ever.

Collection-agency boom

The bad-debt collection business is hale and hearty -- so much so that we are chagrined. If there was ever a tailor-made Grant's investment concept, it is the bad-debt collection concept. But, glancing at the accompanying graphs, we notice that we are not the first to catch on to it.

World financial mania

More bank reserves

A footnote to the Federal Reserve balance sheet disclosed that foreign central banks and other such shadowy international institutions accumulated $4.8 billion in marketable government securities last week, bringing their collective Treasury holdings to $140 billion. Both the weekly accumulation and the grand total constituted records.

Full throttle

The idea that the 1980s are a simple replay of the 1920s (but without Babe Ruth) has never sat well around here. It is too pat and too popular. If the past were really so obliging as to repeat itself literally, then historians would have all the money.

Reflation: So what?

Bond happy

In the spring of 1984, when Treasury yields were pushing 14%, it seemed that everybody hated bonds, even governments. Now that Treasury yields are under 8%, it seems that everybody loves bonds, all of them.

Really bullish no more

From time to time we've quoted the views of a professional bond investor who's gotten it right since the bottom of the market in the spring of 1984. The other day, this man, who has been known in these pages as "really bullish" (he hates a fuss), turned bearish.

Fox preferred

First there was John W. Kluge, who sold $1.3 billion's worth of debt securities with the gay disclaimer that the investor might never see his money again.
Then there was K. Rupert Murdoch, the Australian-born media magnate, who assumed the Kluge debt in order to buy a portion of the Kluge assets.
Now comes Murdoch again.

Sell 'em (again)

Paul Montgomery, the technician at Legg Mason Wood Walker, Newport News, Va., called the top last January 6. He thought it was the top, but it wasn't, and he switched gears and jumped back in the market. Now he is bearish all over again, as he wired his clients last week...

Mr. Right

The club of forecasters who got bullish early and who stayed bullish on bonds is as exclusive as the Union. It includes, among other people, Edward Yardeni, chief economist at Prudential Bache Securities...

Reflation? No problem

February 24, 1986, Vol. 04, No. 04

"Time, gentlemen!"

The congressional testimony by Paul A. Volcker last week was out of tune with the times. In a day of bull markets, tax cuts and growth-minded economic policies, the chairman sounded the cautionary note of inflation.

Turner again

"By the end of this month, I'll owe $2 billion, more than some smaller Third World countries, and I'm pretty proud of that. Today, it's not how much you earn, but how much you owe."
-- Ted Turner, quoted in The Wall Street Journal, February 11.

P.S. New Hampshire

Public Service New Hampshire, the outcast utility that last year improved itself (Grant's, January 13), sold $225 million's worth of third mortgage bonds last week through a syndicate headed by Merrill Lynch.

Hot issue

Oil slicks

The accompanying lines of type, reproduced from The Wall Street Journal, document the unbelievable: On separate trading days recently, issues of Petro-Lewis and Crystal Oil gave up 14-1/2 and 15 points, respectively, on the American Stock Exchange.

Texas thrift

A recent sale of junk debt by the San Antonio Savings Association has caused no long lines of customers to form outside brokerage offices. For one thing, the issue was small -- $25 million's worth -- and the thrift is mutually owned. And for another...

Oscillator

Blind pool

The launching last week of ML Media Partners for the purpose of investing a quarter billion dollars or so in TV and radio stations, the identities of which the managing partners don't happen to know at the moment, is a news story of possible historic interest.

January 27, 1986, Vol. 04, No. 02

Deal us out

A complication may be developing in the proposed leveraged buyout of the Outlet Company subsidiary of the Rockefeller Group Inc. because of proposed changes in the tax laws, according to Wall Street sources.
-- The New York Times, January 21.

Main chance

Not to put too fine a point on it, but where are interest rates headed? Where is the bond market going, and when will it get there? If the oil market is so weak, why is gold so strong? If inflation is coming back, why have the commodity indices taken a header? You could drown in the crosscurrents.

Gold: Why?

BIS: the stock (again)

One exotic international bank stock was strong last week. That was the Bank for International Settlements, the Swiss-based central bankers' bank that also happens to be an investment (Grant's, July 1).

Major top?

Fannie Mae: the Texas angle

Fannie Mae may not be the perfect interest-rate proxy (Grant's, December 30), but it was the next best thing last Tuesday. The bond market climbed, and the shares of the Federal National Mortgage Association did handsprings.